Financial Crises Analysis
Overview
 Asian Financial Crisis
 July 1997-1999
 Mainly South East Asian
Countries
 Started in Thailand
 2008 Financial Crisis
 US housing bubble burst
 Bailout of banks
 Led to 2008-2012 global
recession
Causes: Asian Financial Crisis
 Financial sector weaknesses
 Large PE ratio in market
 Borrowing in foreign currency
 Poor supervision
 Problems in external sectors
 Large current-account deficits
 Dependency on exports
 Unsound investments
 Real Estate bubbles
 Contagion effect
 “Wake-up call” hypothesis
Causes: 2008 Financial Crisis
 Subprime lending
 Mortgage lenders relaxed standards to
lend to risky borrowers
 Housing bubble- peak 2006
 Risky borrowers drove prices up
 Easy credit conditions
 Lower interest rates
 2000- Low fed funds rate- 1%
 Foreign funds
 Deregulation of banking
 1970s onward- government policy:
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Lack of supervision
Timeline of Economic/Political
Policies: Asian Financial Crisis
 Thailand
 July 2, 1997: Thai government forced to float baht
 August 5, 1997: Adopts IMF measures for $17 billion loan
 Dec 8, 1997: Government closes 56 insolvent finance companies
 South Korea
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Nov 17, 1997: Bank of Korea allows won to drop- 1000 to USD
Dec 3, 1997: IMF approves $57 billion bailout
Dec 23, 1997: World Bank gives $3 bill
Jan 28, 1998: International banks agree with SK to exchange $24 bill of
short-term debt to longer-term loans
 Indonesia
 Oct 31, 1997: IMF gives loan package of $40 bill. Gove closes 16 banks
 Jan 8, 1998: Rupiah divas with President Suharto’s state budget plan
 March 9, 1998: IMF delays $3 bill installment of loan package because of
Suharto
 May 5, 1998: Student riots against Suharto
 May 22, 1998: Suharto resignns
Timeline of Economic/Political
Policies: 2008 US Financial Crisis
 South Korea
 Sept 26, 2008: Bank of Korea injects into currency swap
market
 Jan 2009: Government delivers massive fiscal programme
 Quarter of program for tax cuts and income/labour support
 Indonesia
 Sept 15, 2008: Gov reduces overnight repo rate to 10.25%
 China
 Sept 15, 2008: Government cuts interest rate for first time
since 2002
 Nov 9, 2008: Chinese economic stimulus plan- 4 trillion RMB
 Nov 28, 2008: Rise in export tax rebates
 Government trying to spur economic expansion
Statistics
 GDP
Statistics: Asian Financial Crisis
Statistics: 2008 Financial Crisis
Statistics
 GDP Growth Rate
Effects: Asian Financial Crisis
 Thailand:
 Large unemployment rates
 Devalue of real estate and construction
 Baht devalued
 South Korea
 Bank failures/bank takeovers
 Moody downgrade- A1 to A3
 Stock market fell
 Indonesia
 Rupiah put on floating exchange rate
 Rupiah drops
Effects: II Asian Financial Crisis
 China
 Forced to devalue currency for competitiveness
 Became largest exporter
 Fixed many issues of financial weakness
Recovery: Asian Financial Crisis
 Thailand
 2001- Thailand’s economy recovered
 Balanced budget
 2003- repaid IMF debts
 South Korea
 GDP per capita tripled
 Nation debt-to-GDP ratio more than doubled
 Indonesia
 Rupiah never recovered- Dec 1998- 8,000 rupiah to 1 USD
 China
 Unaffected by crisis
Economic Forecast
 Only Thailand experienced recession
 China, South Korea, Indonesia experience slowdowns
 Dependant on exports to US
 Forecast:
 2012- 3.5% growth in world GDP
 2013- 4.1% growth in world GDP
 Emerging Asia to be economic leaders in growth
 China:
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Trade balance decreased greatly from crisis- 2009 decreased by 10%
China to shift from export production to export for domestic consumption
Domestic consumption needs to rise as share of GDP
12th 5-year plan- boosting consumption and household income
Graphs of Economic Recovery